Time for change Unconventional strategies to disrupt the downturn Junior mine 2015

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Time for change
Unconventional strategies to disrupt the downturn
Junior mine 2015
The junior mining sector remains caught in the midst of an unparalleled
downturn. Equity and debt markets have dried up and cash reserves are
reaching new lows. Waiting is no longer a viable strategy: junior miners
need to take urgent action now, before crisis hits, and do whatever it takes
to find the cash to keep their businesses and projects moving forward.
Junior mine 2015, looks at the challenges facing junior miners and the
unconventional solutions that deserve serious consideration. We explore
aggregation, de-risking, non-traditional financing and dealing with
periods of financial distress—and share insights from junior mining leaders
whose determination and willingness to embrace new thinking is creating
future value.
Top 100 financial highlights and analysis
As the slump continues, miners need to take action
Our analysis of the top 100 junior
mining companies listed on
Canada’s TSX Venture Exchange
(TSX-V) paints a grim picture—
but not an unexpected one. Key
financial indicators show a steady,
ongoing decline across the sector.
The market capitalization of the TSX-V’s
top 100 miners has dropped significantly,
from CAD$7.9 billion last year to CAD$4.8
billion at June 30, 2015 (Fig 1). Mining’s
share of the total TSX-V has also continued
to fall: once making up more than half of
the exchange’s total market cap, mining
now contributes only 36%.
TSX-V market capitalization 2007–2015 ($ billions CAD)
55.9
62.1
The pain is shared across the sector, as the
average market capitalization of explorers,
producers and developers alike has fallen
sharply over the past year. While the total
market capitalization has declined slightly
(11%), explorers’ total market cap has
dropped by 45%—and producers’ total
market cap has plummeted 57% (Fig 2).
Figure 2Total market capitalization by stage of mining ($ billion CAD)
Production
Top 100 Mining Companies
All Mining Companies
Total TSX-V
64.9
Figure 1
Market capitalization
0.6
2015
2014
1.3
40.5
2014
Exploration
20.8
2015
4.7
2014
4.8
7.6
11.1
6.5
13.1
2.6
7.9
20.6
2015
1.9
26.2
31.9
35.7
1.7
11.7
12.7
13.9
8.6
22.9
25.0
29.4
18.1
8.6
37.0
37.7
40.0
Development
200720082009201020112012201320142015
Top 5
The top 5 juniors in 2015 illustrate just
how much the sector has shrunk over the
course of the downturn. This year’s top 5
are significantly smaller than their 2014
predecessors: four of them wouldn’t have
made last year’s list.
Figure 3
Market capitalization analysis ($ millions CAD)
2015 top 5 companies
1 Gold Reserve Inc.
373
35%
276
2 Roxgold Inc.
222
11%
200
3 Reservoir Minerals Inc.
203
-26%
275
4 Ascot Resources Ltd.
181
126%
80
5 NexGen Energy Ltd.
171
45
276%
2015
2014
Financing
Reviewing the financial highlights for the
top 100 companies echoes what we’ve
heard in our conversations with mining
leaders across the country. Cash is tight,
revenue and income are falling alongside
lower commodity prices, and financing is
incredibly hard to come by.
It’s becoming increasingly hard to find
new sources of funding. Across the
top 100, cash provided by financing
has dropped 27% since last year, and
shareholders’ equity has fallen 30%.
42
33
37
27
22
19
10
7
10
12
Across the top 100, overall revenue is
down 28% from last year, a drop of nearly
CAD $195 million. That’s balanced,
slightly, by an 18% reduction in overall net
losses.
23
Revenue and income
Top 10
Top 100
14
It’s the same story for debt financing.
Overall, 24 companies among the top
100 raised CAD$278 million in new debt
financing in 2015, down approximately
27% from 2014 (Fig 7), with more than
two-thirds (69%) of that amount being
raised by four miners.
Figure 4Average cash, Top 10 and Top 100
($ millions)
29
Despite prudent steps to reduce spend,
cash is running out: the top 100’s cash
position fell nearly one-third (31%) since
last year and total cash reserves are at
an all-time low. On average, the top 100
junior mining companies have CAD$7
million on hand, down from CAD$10
million last year (Fig 4).
13
The top 100 raised CAD$515 million in
new equity financing in 2015, down 25%
from the previous year (Fig 7). While
74 companies raised equity last year,
15 companies raised 86% of it. The vast
majority raised less than $1 million each,
most of which came through private
placement.
Cash reserves are dwindling
2009201020112012201320142015
Figure 5
Financial highlights, Top 100
($’000 CAD)
Total
Figure 6Cash raised from financing, Top 100 ($ millions CAD)
2015
2014
Change
Net cash provided by (used in) operating activities
(248,739)
(261,010)
-5%
Cash used ininvesting activities
(516,936)
(669,865)
-23%
Cash provided by financing activities
651,948
888,935
-27%
Cash flow statement
Equity
128
Development
Debt
142
Cash & ST investments
671,127
967,864
-31%
Property, plant and equipment (net
3,518,431
4,496,898
-22%
Total liabilities
1,512,539
1,422,961
6%
Shareholder’s equity
3,294,291
4,690,828
-30%
Revenue
495,399
690,352
-28%
Net income (loss) for the year
(533,029)
(652,462)
-18%
Income statement
Equity
Debt
$
$
25%
278
2015
27%
Equity
92
Exploration
23 Debt
295
Figure 7Proceeds raised from financing, Top 100 ($ millions CAD)
2015
Debt
113
Balance sheet
515
Production
Equity
Embracing unconventional strategies
Non-traditional financing
“
You want to make sure you get what you
pay for—and nothing you’re not expecting.
Don’t be in a hurry [with due diligence].
Paul Huet, President, CEO and Director, Klondex on securing
funding for the acquisition of Midas Mine.
Rick Van Nieuwenhuyse, President and CEO, NovaCopper, on
obtaining non-traditional financing through an asset acquisition.
”
Explore the full report at
www.pwc.com/ca/juniormine
Contacts
Liam Fitzgerald
Partner, Tax
“
It’s all about who you partner with. By
partnering with the right groups, you can
accomplish anything.
”
Market aggregation
“
“
There’s a certainty in putting companies
together with strong financial partners and
a good cash balance.
Sometimes you have to get aggressive,
and be prepared to have to get into the
trenches and fight for it.
John Burzynski, President and CEO, Oban Mining on
aggregating juniors to improve shareholder value.
Pat Donnelly, President, First Mining Finance, on pursuing
strategic acquisitions to build a mineral bank.
”
”
National Mining Leader
416 869 2601
[email protected]
Dean Braunsteiner
Partner, Assurance
Ontario Mining Leader
416 869 8713
[email protected]
Embedding a culture of
innovation
“
It hadn’t been used here [North
America] before, but that didn’t deter us at
all. It’s not as if we can only use things that
we’ve seen here.
”
Gordon Bogden, President and CEO, Alloycorp, on adopting
Ropecon technology to innovate their Avanti Kitsault mine.
Mark Platt
Partner, Assurance
B.C. Mining Leader
604 806 7093
[email protected]
Nochane Rousseau
Partner, Assurance
Quebec Mining Leader
514 205 5199
Realizing value of distressed
companies
“
[We’re] taking a risk-based approach
and being very prudent. Looking for the
best return, the nearest payback with the
least amount of risk, is very key.
”
Derrick Weyrauch, CFO, Jaguar Mining on managing the
business after a restructure and recapitalization.
[email protected]
Calum Semple
Partner, Consulting
Global Mining Consulting Leader
416 815 5323
[email protected]
James Lusby
De-risking project financing
“
You’ve got to find some creative
ways to keep moving, without
significant dilution.
”
Steve Filipovic, CFO, Premier Gold Mines on de-risking
project financing through partnerships.
Partner, Assurance
416 365 8181
[email protected]
Mark Patterson
Partner, Assurance
604 806 7160
[email protected]
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